I have been a regular visitor to India for more than three decades, and every visit has been an invigorating experience. I have witnessed first-hand the significant changes in the economic landscape of the country. It is this economic transformation that gives India the runway to achieve its ambition of becoming a ‘developed’ nation by 2047, which also marks its 100th year of Independence.
In the face of global challenges such as the geopolitical tensions swirling around us all and multi-decade-high inflation, India has the potential to generate differentiated success. Of course, as with every substantial undertaking, there are hurdles to overcome, but with a fast-growing economy driven by investment, innovation, and demographics together with macroeconomic indicators, India has a real opportunity to seize.
It took Independent India six decades to become a $1-trillion economy. Between 2007 and 2018, it more than doubled its GDP to $2.7 trillion. From 2018 to 2028, India is expected to emerge as the third-largest economy in the world, with a GDP of close to $6 trillion.
An important foundation of India’s economic resilience has been macro-stability, driven by consistent policymaking over the last decade. An outcome of this consistency is evident in the confidence to sustain 7% GDP growth. A key positive indicator has been the narrowing of the current account deficit over the last decade, due to the structural upshift in India’s services exports—which have now more than doubled in the last seven years and in quantum exceeds Saudi Arabia’s oil exports. Schemes like production-linked incentives (PLIs) and a build-up of the fourth-largest foreign exchange reserves of $667 billion, covering nearly a year of imports, also augur well for economic growth.
Inflation is down from double digits a decade ago to less than 5% and is far less volatile compared to developed markets. Steps by the Reserve Bank of India (RBI) on inflation containment, quality of credit disbursal, and resilience of the banking sector are supported by the government’s commitment to balancing fiscal prudence and productive capital expenditure.
Global investors are optimistic about India. Apart from the strong macros, India benefits from the emphasis on both physical and digital infrastructure creation, a demographic dividend with a large English-speaking population, a robust energy transition road map, and commitment to social and economic uplift of its citizens.
Crowding In
Central to India’s growth story is the government’s focus on infrastructure, with capital expenditure increasing at a CAGR of 27% over the last five years. In the past decade, India has built three times more infrastructure than it had in the previous 60 years, with the highway network, port, and airline capacity doubling. With this context, it is important to note that between 1950 and 1989, approximately a quarter of the US’s productivity increase was attributable to investments in highways, indicating the multiplier effect that accrues with such investments.
This increase in government capital expenditure has been accompanied by a remarkable increase in tax buoyancy at both corporate and individual levels. Tax collections have grown at an average annual rate of 20% over the past three years, creating a broader and deeper tax base. The GST system of input credits rapidly expanded the tax net, increased collections, and formalised the economy, thus giving the government the resources to invest in critical infrastructure projects, creating a virtuous growth cycle.
Going forward, we can expect a ‘crowding in’ of private sector capital expenditure, as India Inc. (private non-financial companies) generates strong cash flows, has its lowest leverage since 2008, and is witnessing high capacity utilisation since mid-2022. Funding of this capital expenditure will also be aided by the strong ratio of corporate cash flow from operations, which has been in the range of 1.5-2x in the last three years. This indicates that the private sector has generated sufficient cash flows to meet capital expenditure demands without raising its debt levels. As per analyst estimates, capital expenditure in emerging sectors such as semiconductors, electric vehicles (EVs), batteries, and solar modules is expected to increase eight times in the next four years compared to the last four years—much faster than a 1.3x increase in traditional sectors, highlighting the potential for more rapid growth in sectors that aid sustainable development.
Impetus on Climate Action
Climate change and its mitigation need immediate attention, and India is aware of the role it needs to play. India’s infrastructure development is not limited to expansion but also focussed on embracing new ‘green’ technologies in several sectors and increasing renewable capacity. As India advances its per-capita electricity consumption, the country will start migrating to levels seen in more developed nations. To this end, renewable capacity is projected to increase from 76 GW in 2018 to 500 GW by 2028, with two-thirds of all incremental energy supply expected to come from renewables. India already has the world’s fourth-largest renewable energy installed capacity. Further growth here will not only reduce its import dependence but also reduce inflation volatility and create new demand for solutions such as electric vehicles, cold storage chains, and green hydrogen-powered trucks and buses.
In the Union Budget 2024-25, the government announced the development of a taxonomy for climate finance to enhance the availability of capital for climate adaptation and mitigation. RBI published a framework for accepting green deposits in 2023 to promote and develop a sustainable financial ecosystem in India. These are initial and important steps for the financing of these sectors domestically and from global pools of capital.
Skilling: The Next Big Agenda
India’s large English-speaking population is an additional enabler of strong services exports. It already provides significant operations services, with such exports expected to touch $500 billion by 2030 with a 50% share of all global capability centres (GCCs). It is now aspiring to become a “factory to the world,” aided by PLI, and working on a transition to net zero.
India needs to continue to invest in human capital through its investment in productivity, health, and education to reap the full benefits of the demographic dividend. The government’s recent announcement in the Budget to incentivise skilling and job creation is a step in the right direction.
DPI a game changer
India has effectively harnessed its technological prowess to develop a robust digital public infrastructure to deliver public services at scale. The measure of payments that India’s Unified Payments Interface (UPI) processes in a day is unparalleled, and the country has built a technological foundation to deliver several public services digitally through this infrastructure—better known as the India Stack. Many economies have payment, identity, or authentication frameworks, but there are few that come close to India’s in terms of interoperability and sheer scale. The stack covers everything from KYC to payments to authentication, and as per the Bureau of International Settlements (BIS), this stack has enabled India to reach bank penetration in less than 10 years, which would otherwise have taken up to five decades.
There are many reasons to be bullish about India. The building blocks are in place to see 7-8% growth for a prolonged period; the focus should be on sustaining the momentum for India to achieve its goal of becoming a sustainable developed nation. I, for one, look forward to supporting and witnessing its progress. 
The author is Group Chief Executive, Standard Chartered. Views are personal